Shares of Kazakhmys Plc. (KAZ.L) increased around 9 percent in London trading after the largest copper producer in Kazakhstan announced that it has entered into a definitive agreement to transfer certain of its mature assets in the Zhezkazgan and Central Regions of Kazakhstan, as part of its earlier announced restructuring.
The assets will be moved to Cuprum Holding, a company owned by Vladimir Kim, a non-executive Director and substantial Shareholder of Kazakhmys, and Eduard Ogay, an executive Director, and the chief executive officer of Kazakhmys Corp. LLC. Kazakhmys will also make a working capital payment totaling about $240 million, plus the net cash flows attributable to the disposal assets.
The agreement is subject to certain consents, approvals and conditions.
It was on February 27 that Kazakhmys reviewed a potential restructuring by separating these assets into a separate corporate entity with a view to potential disposal.
Kazakhmys then entered into discussions with Kim, who indicated that he would be willing to consider creating a vehicle, Cuprum Holding, in which he would be the principal shareholder, to hold the disposal assets.
Ogay has a beneficial interest in Cuprum Holding and will act as its chief executive officer, and will therefore step down from the Board following the deal. Meanwhile, Kim has indicated to the Directors that he remains committed to his holding in Kazakhmys as his principal business interest.
Kazakhmys now said the parties have also entered into two framework services agreements, enabling the remaining Kazakhmys and Cuprum Holding to provide each other with transitional and longer-term services following completion.
Kazakhmys will continue to own the mining and producing assets in the East Region and the Bozymchak mine in Kyrgyzstan, as well as the Major Growth Projects. The remaining Kazakhmys has been proposed to be renamed 'KAZ Minerals Plc.' Oleg Novachuk will remain as Chief Executive Officer of Kazakhmys.
The working capital payment comprises cash of $150 million, approximately $80 million representing the unspent amount of sustaining capital expenditure budget of the disposal assets and certain MET and VAT refunds of approximately $10 million.
The company noted that the decision for restructuring was taken after declining grades, cost inflation and lower commodity prices put significant pressure on its profitability and cash generation over the past few years.
Kazakhmys expects the deal would allow it to deliver on its stated strategy to focus on production from a small group of large scale, low cost, open pit mines, with the objective of achieving profitable production and generating sustainable positive cash flow.
Novachuk said, "This Transaction provides a sustainable future for a set of relatively mature assets which, although of limited economic value to the Group, remain extremely important within their local communities, where they are major employers. Transferring these assets to a private entity allows Kazakhmys to move forward with operations more suited to the demands and financial returns of a listed company."
In London, Kazakhmys shares were gaining 30 pence or 9.41 percent, and trading at 348.80 pence.
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